Watson Island: startling new allegations


#1

[quote=“Pantagruel”]Well, if SunWave is now paid off, we can only hope that the Colonial Coal lawsuit is either heard and CPR wins, or a settlement is made. I just did a fast Google search and could not find anything recent.
[/quote]

There was a flurry of court filings last month which included some rather startling new allegations of fact by Watco. On Sept 9 Watco filed an Amended Notice of Claim which among other things makes the following statements, which I am quoting verbatim from the numbered paragraphs:

"40. A new City Manager was hired by the Defendant Prince Rupert in or about May 2013. The City Manager was responsible for representing the Defendant Prince Rupert in its dealings with Watco, and for the completion of the Definitive Agreement.

  1. Following the appointment of the new City Manager, the Defendant Prince Rupert ceased negotiating in good faith with the Plaintiff WatCo to conclude the Definitive Agreement and unilaterally, unfairly and without adequate warning imposed arbitrary deadlines and conditions on the completion of the Definitive Agreement for the improper purpose of defeating the sale of the Watson Island Property to Watco.

  2. The City Manager expressed the opinion to Watco that the agreed upon purchase price was insufficient and accordingly began to actively work to defeat the deal between Watco and the Defendant Prince Rupert, including by beginning to speak to other prospective purchasers for the Watson Island Property.

  3. In furtherance of this scheme to defeat the sale, or about October 2013 the Defendant Prince Rupert began to place unreasonable conditions on Watco, including advising the Plaintiff WatCo that it wanted the negotiations for the sale of the Watson Island Property concluded soon, but no specific date was identified. In placing this condition on Watco, the Defendant Prince Rupert knew that the delays in completion of the Defintiive [sic] Agreement were due to its own delay and neglect in providing clear title to the Watson Island Property and to the Sunwave litigation. *

  4. On or about December 17, 2013, the Defendant Prince Rupert, advised in relation to the negotiations to deal with the assets of Sun Wave Forest Products Ltd., that, subject to Sun Wave Forest Product’s agreement, the Defendant Prince Rupert imposed additional unreasonable conditions and now preferred WatCo to purchase Sun Wave’s assets at a purchase price anticipated to be approximately $3,000,000. [the crossed out paragraph number from the original filing has been deleted]

  5. Unbeknownst to Watco, the Defendant Prince Rupert was by this time already in secret discussions with other potential purchasers and, through its representative the City Manager, was actively withholding from Watco the fact that it was secretly preferring to sell the Watson Island Property to other parties and was advising senior officials of the Defendant Prince Rupert that he had developed secret “irons in the fire” for the purchase of the Watson Island Property in place of Watco.

  6. On January 21, 2014 the Defendant Prince Rupert’s officials were meeting with other interested purchasers despite the fact the Oral Exclusivity Agreement remained in effect.

  7. The Defendant Prince Rupert failed to use reasonable efforts to satisfy the conditions for the purchase of the Watson Island Property, impeded the Plaintiff WatCo’s efforts to satisfy the conditions for the purchase of the Watson Island Property, and secretly preferred other purchasers."

The following new statements in the “Legal Basis” part of the Amended Notice of Claim seem to get to heart of the matter:

"6. The Defendant further owed the Plaintiff WatCo a contractual duty of good faith and honest performance pursuant to the Conditional Offer to Purchase, the Exclusivity Agreement and/or the Oral Exclusivity Agreement that required that it use reasonable efforts to satisfy the conditions for the purchase of the Watson Island Property, that it not impede the Plaintiff WatCo’s efforts to satisfy the conditions for the purchase of the Watson Island Property, that it negotiate in good faith towards the completion of a Definitive Agreement, that it not secretly prefer other potential purchasers of the Watson Island Property; and that it not unilaterally, unfairly and/or without adequate warning imposed arbitrary deadlines on the completion of the Definitive Agreement.

  1. The Defendant Prince Rupert breached those duties by failing to use reasonable efforts to satisfy the conditions for the purchase of the Watson Island Property, by impeding the Plaintiff WatCo’s efforts to satisfy the conditions for the purchase of the Watson Island Property, by failing to negotiate in good faith towards the completion of a Definitive Agreement, by secretly preferring other potential purchasers of the Watson Island Property, and by unilaterally, unfairly and without adequate warning imposing arbitrary deadlines on the completion of the Definitive Agreement."

In an Amended Response dated September 21 the City denied all of the allegations of fact quoted above as well as other allegations and legal arguments.

As previously reported here, in August the BC Supreme Court denied the City’s application to cancel the Certificates of Pending Litigation and declined to declare that there was no binding agreement between Watco and the City. Watco was ordered to pay $3.2 million into Court as security while those issues go to a full trial. < viewtopic.php?f=3&t=22573&p=203833&hilit=watson+island#p203833 >

The City applied to have the CPL’s cancelled on the grounds that the funds had not been paid into Court by the deadline, but on Sept 23 withdrew that request. That suggests that Watco has put up the necessary funds and the CPLs remain in effect, which effectively prevents the City from selling the property.

What can we make of all of this? Legal battle has been well and truly joined.*


#2

Thank you for the update.

One always needs to remember that in Pleadings, both sides try and paint the other side as bad as they can. Everything will be written in a pretty one-sided manner and needs to be read with a 'grain of salt". However, even with that caveat, the allegations are disturbing to read. I hope it is not proven to be true.


#3

Watco’s initial claim and the City’s reply certainly were one-sided with little overlap as to agreed facts.

Reading the submissions, the negotiations were evidently lengthy and complicated in that the players changed (eg Lax Kw’alaams and Metlakatla were involved then were out of the the picture) and exclusivity agreements were in place, sometimes in writing and sometimes otherwise. Among the few certainties are that the parties kept talking and Watco kept on paying about $90K a month until the City changed its mind in February 2014. Although the case is messy, it appears that for a time the parties were at least moving close to a final agreement.

The City’s basic position is that at no time did it commit to selling the property. It says that the mayor and council always retained a discretionary power under the Community Charter to decide whether to sell the property. In other words the City maintains that it could always walk away, which it did, while keeping about $2 million.

One key issue is that the Community Charter provides that to sell property a municipality must first publish a public notice, which the City did, stating that it would sell the property for $5 million. Watco gives great weight to that fact. The City counters that the notice was ineffective because the price was later changed to $5.7 million. Watco answers that the City unilaterally changed the price and cannot use that to invalidate its own notice. The notice at least seems to have created some expectations on Watco’s part. Whether those expectations were reasonable enough to impose obligations on the City is an open question.

In February 2014 the City refused Watco’s cheque and announced that it would continue to negotiate, but not exclusively. It appears beyond dispute that until that point Watco and the City had an exclusivity agreement, whether in writing, orally or by conduct. The dispute has been about whether negotiations under that exclusivity agreement resulted in a sales agreement.

Watco’s latest submission opens up a new front as it were, by alleging that during the course of the exclusivity agreement the City was secretly negotiating with unnamed other parties. Whether there was a sales agreement or not, breaching an exclusivity agreement by talking to others or otherwise acting in bad faith can give rise to damages. The City may find itself winning on one front but losing on another.

We obviously won’t know the full facts until the Court publishes its decision (our judicial system, unlike municipal governance, is refreshingly transparent). Reading the amended claim, I was surprised by how allegations of bad faith that were alluded to vaguely and in passing in the original submission are now presented with bracing clarity in the amended filing. I don’t think that there can be much doubt that the City will have a serious case to answer.


#4

I wouldn’t call this city management screwing people around new or startling.